By Adam Hoeksema
There are tens of thousands of iPhone app developers out there hoping to hit it big and develop the next app that sells a million copies. The problem is that when you remove the top 10% of iPhone apps from the conversation, then the average app sells just over 11,600 copies. With the average sales price for an iPhone app hovering around $1.50, and by the time Apple takes its commission, the average app will generate just over $10,000 in sales. Considering the cost of mobile app development, the average iPhone app is probably losing money, or just breaking even. In order to increase your chances of building a profitable app, you need to do a bit of research first and determine the market potential for your app, and then work your way up to a final sales forecast.
Now I am going to outline exactly how I would forecast sales for an iPhone application. Let’s take the popular bubble level app. A level allows you to place a device on a surface and determine how level that surface is. You might use it for hanging a picture, pouring a concrete floor, or building a house. A traditional level is a tool used by millions of people everyday. So let’s say that you wanted to develop the first iPhone app that functioned as a level. How would you begin to forecast sales for this tool? Here is what I would suggest:
1. Start with the Google Adwords Keyword Tool – I would start by using the Google Adwords Keyword Tool to get an estimate of the number of people that are searching for a level tool each month. Here is what I found for just a few of the relevant keyword phrases:
- Bubble Level – 165,000 monthly searches
- Level Tool – 110,000 monthly searches
- Laser Level – 135,000 monthly searches
These three pieces of data give you an idea of your market potential. With 410,000 monthly searches represented in just 3 search phrases on Google, it is safe to say that there are at least 1 million monthly searches for level related keyword phrases between all of the major search engines. So for simplicity, let’s assume that there are 1 million people searching online for a level each month.
2. Other Markets – To be clear, you will probably be able to sell many units of your app to people who never performed a search for a level. For example, a worker on a construction job may have purchased your app, when he pulls out his phone to use the app the entire crew working with him sees the app and immediately purchase the app for their own phone. There are other markets, but it is difficult to quantify when you are forecasting future sales. You just don’t know how many times someone will see one of your customers using the app and purchase it themselves, so in order to stay conservative, I would base my sales projections on search data.
3. Start to Breakdown the Total Market – Now that we know there are at least 1 million searches per month for a level tool, it is time to start breaking that number down to determine how much of that market you can realistically capture. Here is how I would do it:
- Let’s assume the 1 million searches are representative of the US population
- 88% of adults in the US have cell phones ( 1 million x 88% = 880,000 )
- 53% of adults cell phone users have smartphones (53% x 880,000 = 466,400)
- 30% of smartphones are iPhones (30% x 466,400 = 139,920 searches)
So after you whittle away at the original 1,000,000 monthly searches you find that only 139,920 of those 1,000,000 searchers have an iPhone.
4. Advertising Click Through Rate – Google Adwords is incredibly powerful because you can target ads for specific keyw
ord phrase searches on specific devices. So you might set up an ad campaign that targets all of the level tool related keyword phrases that is only displayed when the user searches using an iPhone.
Google says that the average click through rate for an adwords ad is 2%, so now let’s assume that of the 139,920 searches per month that occur on an iPhone, 2% will click through on your ad. 139,920 x 2% = 2,800 monthly clicks.
5. Sales Conversion Rate – Now that you know you will have 2,800 visits each month, you need to determine a conversion rate for those visitors. You can assume that those 2,800 are highly qualified and targeted visitors, but conversion rates are still going to be no more than 20%. Let’s say you convert 20% to purchase a $1.99 Level Tool App. 2,800 x 20% x $1.99 = $1,115 per month.
6. Additional Sales Sources – Now that you have a monthly sales projection for your app based on Google Advertising, you might want to add sales projections from other sources. For example, you might be able to find data that suggests each person who buys your app will result in 0.25 additional app sales because they tell others about the app, share it with their friends or co-workers, or share via social networks. Maybe you are able to bring in strategic partners to increase sales. For example, maybe one of the major level tool manufacturers would sell a copy of your app with every physical level they sell.
At the end of the day you need to create your sales projections based on data, or risk losing thousands of dollars. Many apps cost more than $10,000 to develop and maintain, but with average sales for an app only reaching approximately 10 grand it is app developer beware.
You can get started creating your profit and loss projections today utilizing the ProjectionHub web application.